Prosper Lending: How does it work?
How Prosper Lending Works 2020
Prosper is America’s first and current market leader in peer-to-peer (P2P) lending, with over $9 billion in funded loans. It serves as a popular alternative to traditional loans and investing options. Prosper Lending cuts out the middleman to connect people who need money with those who have money.
Prosper’s mission is to allow people to invest in each other in a way that is financially and socially rewarding.
Prosper Lending 101
Prosper is best understood from 1) a borrower’s perspective and 2) an investor’s perspective. Borrowers typically request between $2,000 and $35,000, and investors can invest as little as $25 in each loan listing they select. Prosper handles the servicing of the loan on behalf of the matched borrowers and investors.
Here’s the fundamentals of how Prosper Lending works:
- Borrowers can choose the loan amount that they need, the purpose of the loan, and post a loan listing on the website
- Investors will review loan listings and can invest in those listings that meet their criteria
- Once an investor reaches out with a loan, borrowers make fixed monthly payments and investors receive a portion of those payments directly to their Prosper account
Prosper Lending protects borrowers’ identities, so information specific to their identity is never revealed. The lending platform also offers an ID Theft Guarantee to protect against fraudulent borrowers. Prosper Funding LLC is a wholly-owned subsidiary of Prosper Marketplace, Inc., which is backed by leading investors including Sequoia Capital, Francisco Partners, Institutional Venture Partners, and Credit Suisse NEXT Fund.
Prosper for Borrowers (2020)
For borrowers looking for funds, Prosper Lending offers:
- A low interest rate
- Fixed term—3 to 5 years
- Single monthly payment
- No hidden fees or prepayment penalties
Prosper Lending makes it easy for borrowers by providing a platform with a streamlined process to getting funds as quickly as possible. A borrower will first answer a few questions in order to determine the lowest eligible rate in just minutes. They will then choose between a fixed term for 3 or 5 years with no hidden fees, early payment penalties or tricky fine print. Lastly, the money they receive will go straight to their bank account via direct deposit.
Prosper also provides a useful app, Prosper Daily, as part of its platform to help borrowers to stay on top of their funds. This allows borrowers to view financial account and loans in one place, know exactly where money is going, and learn more about how to be smart about using a credit card.
How hard is it to get approved by Prosper Lending?
Some borrowers find that they have better luck getting approved online than they do with traditional lenders. Getting a loan can prove difficult for some especially when it comes to big banks and less than ideal credit. There is still some fundamental criteria that borrowers should be aware of:
Credit Score: Prosper checks your credit at Experian, and it’s generally required to have a score of at least 640. The higher your score, the less you’ll pay for your loan.
Debt to income ratio: Lenders look at how much of your monthly income is available to repay loans by calculating a debt to income ratio. Prosper generally looks for a number below 50% for a new loan.
Income: Borrowers need to have a source of income, but Prosper does indicate that retirees can also borrow, so this doesn’t necessarily have to be from working at a job.
What do Prosper Borrowers use loans for?
Borrowers use the funds for anything from debt consolidation to home improvement to auto and vehicle payments to small business expenses.
Prosper for Lenders
For investors looking for unique lending opportunities:
- An average 8.10% estimated return on investments
- Invest in a more “personal” loan
- Diversity your portfolio beyond stocks and bonds
Prosper Lending offers an easy way for investors looking for solid returns to invest in a more personal loan by hosting a wide range of credit-worthy borrowers according to FICO score, rating and term. An investor can choose to invest by selecting individual loans or use an Auto Invest tool to build a target portfolio based on a set criteria. The investor’s monthly returns are deposited directly into their account.
What Prosper Lenders should know
There is a $25 minimum investment per loan, making it easier to build a diverse portfolio.
83.5% of active investors received returns that met or exceeded their expectations.
The average FICO score of Porsper borrowers is 710 vs. the U.S. average of 695.
Conclusion: The future of Prosper Lending
The Prosper Lending platform has allowed Prosper investors reach borrowers with over $9.1 billion USD in funds since 2006 and counting. Originally envisioned to be “an eBay for loans”, Prosper continues to simply match individuals with money with individuals that need money. The core value proposition of Prosper Lending, and what it will most likely continue to be, is ultimately the speed and efficiency through technology and an ability to service borrowers at speeds that banks never could.